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Can an employer withdraw from a non-compete clause without giving a reason?

The Labour Code allows employers to withdraw from a non-compete clause only for the duration of the employee's employment. According to the existing case law of the Supreme Court, however, it was also true that even if the parties agreed, it is not possible to withdraw without giving a reason. The Constitutional Court rejected the above conclusion, declaring it inadmissible judicial completion of the law. In practice, this means that employers will be able to withdraw from a non-compete clause without giving a reason. However, it will always be necessary to examine whether the employer has acted arbitrarily or abused its rights, which could render the withdrawal invalid.

(Judgment of the Constitutional Court of 21 May 2021 File II. ÚS 1889/19)

18. 6. 2021

The end of vague definition of the company’s scope of business

The Supreme Court ruled that the definition of scope of business "Manufacturing, trade and services not listed in Annexes 1 to 3 of the Trade Licensing Act" in the articles of association is too vague and therefore invalid due to uncertainty. The affected companies are obliged to update their founding documents to include a clear definition of their scope of business and to update this information in the Commercial Register. The registry courts may also officially request companies to fulfil this obligation under the penalty of their dissolution with liquidation. Newly established companies will also have to meet the condition of certainty when defining their scope of business, otherwise they cannot be registered in the Commercial Register.

(NS 27 Cdo 3549/2020)

8. 6. 2021

Supreme Court overturned criticised judgment on the invalidity of shareholders' agreements

Although the Supreme Court acknowledged that a shareholders' agreement that would bind them to give instructions to members of the board of directors in matters of business management and to ensure that these instructions are automatically carried out would be invalid, it did not agree with the High Court as regards other issues. According to the court, it is necessary to distinguish the company's business management from its strategic management. Unlike business management, the general meeting may issue instructions to the board of directors in matters of strategic management. The Supreme Court recalled the priority of interpretation, which does not lead to the invalidity of the agreement. This means that even if a matter of business management were involved, the agreement would not be invalid if the shareholders' obligation were interpreted as an obligation of intercession with the members of the board of directors or as a "guarantee of a certain result". In these cases, the shareholders may assume the obligation in relation to the actions of the board of directors, which, inter alia, will enable the members of the board of directors to comply with the duty of care. These conclusions must be considered when drafting shareholders' agreements, or a group can be established within which instructions regarding business management can be given.

(NS 27 Cdo 1873/2019)

4. 5. 2021
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